The Pace of Internationalization of SMEs – Born

Global vs. Gradual Global

Work in Progress

Siv Marina KarlsenPhD-candidate

Department of MarketingNorwegian School of Management BI

Elias Smiths vei 15, Box 580N-1302 SANDVIKA, NORWAY

Phone + 47 67 55 73 43Fax + 47 67 55 76 76

E-mail: siv.marina.karlsen@bi.no

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AbstractThe objective of this study was to describe the process of

internationalization of SMEs and to explore/explain why some become

more gradual global and some are born global. This is due to the fact

that increasing evidence shows that in spite of small size and

inexperience in international transactions, high value-adding

manufacturing firms are capable of outperforming their larger, more

resourceful counterparts in foreign markets. The aim was to get more

knowledge about this new type of firm – what characterizes Born Globals

and the internationalization process?

Introduction

BackgroundThe objective of this study is to describe the process of

internationalization of SMEs and to explore/explain why some become

more gradual global and some are born global. Empirical evidence from

many countries support the notion that firms often internationalize like

“rings in the water”; their market knowledge increases gradually and

hence uncertainty as well as risk is reduced over time for each country

market. However, in 1988 Johanson & Mattson pointed out that some

firms follow other internationalization patterns. They argued that the

degree of internationalization of markets (i.e. the frequency, intensity,

and integration of relationships across borders in the particular industry

market) has an impact on the internationalization process of the

individual firm. In highly internationalized markets, firms may leapfrog

some of the stages or rings in the water. More recently many authors,

(f.ex. Oviatt & McDougall, 1994; Knight & Cavusgil, 1996; Madsen et al,

1999), have found empirical evidence of yet another type of exporters

often labeled “born globals” (BGs), which aim at the international

markets or even the global market right from their birth and do not

seem to follow any kind of stages e.g. they go beyond leapfrogging.

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Knight & Cavusgil (1996) believe that the slowness of the process

described in traditional internationalization literature, may be an

indication of management’s aversion to risk-taking and their inability to

acquire relevant knowledge and information. The fact that the process

seems to be speeded up now, may partly be explained by the so called

born globals’ management being less risk-averse and/or they having

easier access to relevant information. The environment has changed a

lot since the “traditional internationalization theories” were developed

f.i. the increased level of globalization in many industries, may make out

part of an explanation for the observed increase in pace of

internationalization of firms. This increased globalization, which is

believed to lead people to perceive the world as smaller, may thus also

make the manager perceive the risk of entering foreign markets, as

smaller. One driver of globalization is believed to be the development of

advanced communication technology i.e. an industry described as

having high degree of globalization will by definition be characterized by

having information transferred easily and faster than in industries less

globalized. This increased access to information may decrease the

psychic distance between countries, which have previously been seen as

a major obstacle for international expansion of firms (e.g. Johanson &

Vahlne, 1977).

Oviatt & McDougall (1994) state that recent technological innovation

and the presence of increasing numbers of people with international

business experience have established new foundations for MNEs.

Traditionally these were developed from large, mature, domestic firms,

but the facile use of low-cost communication technology and

transportation means that the ability to discover and take advantage of

business opportunities in multiple countries is not the preserve of large,

mature corporations anymore. Crick & Jones (2000) for instance, found

that several firms were set up by managers with experience, operating

in international markets from previous firms in which they were

employed. Thus, they have got experience in dealing with the

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complexities of international operations, they have acquired an

appreciation of the risks and resource implications, and last but not

least, they have developed a network of customers and contacts on

which they can build on after setting up their own firms. Whatever

reason, increasing evidence shows that in spite of small size and

inexperience in international transactions, high value-adding

manufacturing firms are capable of outperforming their larger, more

resourceful counterparts in foreign markets.

According to Bradley (1995), there are basically two dimensions, which

represent the key strategic decisions in connection with a firm’s

internationalization, (1) international market selection, and (2) choice of

entry mode. With regard to the market selection dimension, BGs often

start activities in many markets fast (simultaneously) and not always in

close markets first. The product is often developed for a

global-/international market (Madsen et al, 1999). Bell (1995) explains

this in the following way: “..psychic distance has become much less

relevant as global communication and transportation infrastructures

improve and as markets become increasingly homogeneous”, (p.62).

Hedlund & Kverneland (1985) also provide evidence of a speeding up of

the internationalization process and posit that: “the establishment and

growth strategies on foreign markets are changing towards more direct

and rapid entry modes than those implied by theories of gradual and

slow internationalization processes”. In other words, it seems the

internationalization process of firms is currently proceeding faster on

both dimensions (market selection and entry mode) than traditional

theory predicts. Traditional theory is here seen as the Process model or

Uppsala perspective (Johanson & Vahlne, 1977/1990). Traditional

internationalization theories describe a process in which the firm

gradually becomes involved in international business and enters foreign

markets and this view seems to enjoy general acceptance among most

international business scholars.

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According to the studies I have found (Knight, 1997; Knight & Cavusgil,

1996; Harveston, 2000, Madsen, Servais & Rasmussen, 1999; Junkkari,

2000), BGs are defined as SMEs with an export rate of more than 25%

within three years of founding. I see this as too broad a definition, for

instance, if a Norwegian SME export 30% of its products to Sweden and

Denmark (within three years) one can hardly call the firm global. In

other words, we need to incorporate what type of market (and how

many) an SME should be present in to be termed a BG in addition, most

very international SMEs usually have a far higher percentage of foreign

sales than 25% (e.g. Luostarinen & Gabrielsson, 2001). I therefore

choose to define a born global as an SME that export a minimum of 50%

within 3 years of founding. But, in addition, to be defined a “true Born

Global” (TBG), the SME has to be present in more than one continent

simultaneously, e.g. for a Norwegian SME to export 80% to European

countries do not qualify to be termed a TBG. For a firm to be labeled

BG, Luostarinen and Gabrielsson (2001) also emphasized the presence

on several continents. They made a distinction between

internationalization degree of a firm (Finnish BGs had more than 80%

sales outside home) and globalization degree (Finnish BGs were found to

have more than 30% sales outside home continent), it might be worth

noticing that they used a time frame of 10-15 years.

Conceptual FrameworkThe existing literature has not reached an agreement as to which

conceptual framework and constructs should be used to explain a firm’s

foreign market entry mode (Andersen, 1997). The present framework

will be based on my perception of the most important contributions to

explain the pace of internationalization of SMEs. Bloodgood, Sapienza &

Almeida (1996), argue that new ventures will seek an international

presence for two reasons: industry conditions (e.g. increased

globalization) may require an international presence for the company to

be competitive and secondly, a venture may seek a global presence to

capitalize on its unique set of resources (e.g. management team’s

experience in global markets, new technologies or innovations, etc.).

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According to them, such conditions must be present for rapid

internationalization to be viable.

Type of product may also have an influence on the strategies chosen for

going international/global. Increasing global competition, together with

increasing speed in the development of new technologies, have led to

shorter product life cycles and higher innovation intensity. The shorter

product life cycles have led to more emphasis on R&D, and on

recognizing new opportunities and exploiting them quickly with

successful timing (ex. PCs and cellular phones). Product characteristics,

thus, are another aspect to be considered. The shorter the PLC, the

shorter the time in which returns on investment in product development

can be earned. Thus, especially companies with small domestic markets

need global volumes over which these costs can be divided.

Experience/background of founders and their relationships make out

important resources of a firm and are important drivers or facilitators of

internationalization. International experience is defined as the

understanding and realistic perceptions of foreign operations, risks and

returns in foreign markets (Aulakh & Kotabe, 1997). The reasoning

here, which is based on the organizational capability of the firm, is that

firms are initially risk-averse when entering new markets, and therefore

not willing to invest substantial resources in unfamiliar terrain. As firm

management gets a better feel for the foreign markets, it has better

perceptions of the risks and returns, and therefore becomes more

confident and aggressive, but also more realistic. This may be

manifested in a willingness to commit more resources and also enable

them to make better investment decisions. International experience has

traditionally been measured at firm level as for instance, geographic

scope of a firm’s experience (number of different countries a firm is

active in) and length of experience (number of years a firm has been

active on the international arena) Erramilli (1991). In the present study

the variable will be analyzed at the individual level, that is, information

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of the founder(s)’ and/or other key employees’ international experience

will be collected. It seems most appropriate since a BG is by definition

not experienced if analyzed at firm level, but several studies (Oviatt &

McDougall, 1994; Reuber & Fischer, 1997; Ellis, 2000), show that key

employees in socalled BGs very often have extensive experience from

previous employment.

Reuber & Fischer (1997) argue that decision-makers with more

international experience, are more likely to have in place a foreign

business network and are more likely to have developed the skills

needed to identify and negotiate with firms in a different culture. Oviatt

& McDougall (1994) further argue that partnerships provide concrete

critical resources such as specific skills and financial resources, as well

as more abstract resources such as legitimacy and market power.

These resources are seen as particularly important when a new and

young firm with poverty of resources is attempting to increase foreign

sales. The relationships may thus, enable the firms to enter new

markets at a faster rate than otherwise possible (e.g. by providing firm

with complementary resources and by opening up markets). This view

is supported by Ellis’ (2000) findings, which support the notion that

awareness of foreign market opportunities (which has been identified as

a critical antecedent of foreign market entry) is commonly acquired via

existing social ties. McGaughey, Welch & Welch (1997), also emphasize

the important role of personal networks in triggering initial export

inquiries or orders. They found that the networks key individuals

brought to bear on the case company’s international activities, were

critical in both the content and direction of the company’s

internationalization; “…much of the ability of the company to initiate

and carry through international operations resided in the decision-

makers’ personal networks” (p. 179).

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Contingency variables

- Product/Industry

- Network

- Skills/Background of entrepreneur

Performance variables

- Financial performance

(mis)fit - Survival

- De-internat./Divestment

- TBG

- BGE

- BGM

- GG

Response variables

Figure 1: Conceptual Framework

One reason for the difference observed in the speed by which traditional

MNEs and BGs become international/global, may be due to different

environmental conditions. “…the slowness of the whole process is a

consequence of incremental adaptations to changing firm and

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environmental conditions rather than the result of a deliberate strategy”

(Knight & Cavusgil, 1996:13). In other words when the environmental

conditions change fast, as in increased globalization, the process of

internationalization is likely speed up as well. In a closed, domestic

industry, a company accustomed to weak competitors and undemanding

customers has little to fear – there is no source of new competitors that

might grow strong in more demanding competitive arenas. In an open,

globalized industry, such newly strong competitors abound (Yip, 1992).

That is why it is important to understand how the industry globalization

drivers affect the competitive environment of SMEs.

Boundaries between domestic and international markets are becoming

less relevant as businesses increase their activities abroad. A global

industry is, in this thesis, conceptualized in a manner consistent with

others: “an industry in which a firm’s competitive position in one

country is significantly affected by its position in other countries or vice

versa” (Makhija, Kim & Williamson,1997: 680). In this regard, the global

industry “is not merely a collection of domestic industries, but a series of

linked domestic industries in which rivals compete against each other on

a truly worldwide basis”, (Porter, 1986:18).

In order to find an explanation to why some SMEs still follow a more

step-by-step approach while other choose the faster and more erratic

approach of jumping stages, Madsen, Servais & Rasmussen (1999)

argue that the development (globalization) may enable firms to more

freely choose their own model of becoming international. International

sales both become easier and more difficult in that international markets

have become more accessible for most firms – while on the other hand

the degree of competition and demands for international competence

has increased. In other words there is both a “positive” pressure from

increased level of globalization – increased accessability to markets, and

a “negative” pressure – tougher competition, it is a necessity for a new

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company to be present in many markets. The result on the pace of

internationalization is the same for both “pressures” - it increases.

The pressures may work differently according to size of home market.

According to Bloodgood, Sapienza & Almeida (1996), new European

firms are more likely to consider internationalizing some of their

activities at the outset than are new US firms. One reason is the fact

that whereas a new US firm operating in 500-mile radius around its base

may do so without crossing borders, a European firm with the same

geographic scope may have to deal with five or six other countries.

Luostarinen & Gabrielsson (2001) state that globals of large countries

globalize because of the demand-based pull forces in global markets,

but BGs of small and open economies globalize due to the push and

pressure forces based mainly on the smallness of domestic markets and

on the fear of expected future competition coming from BGs located in

large nations. According to Hamel & Prahalad (1985), companies that

nestle safely in their home beds will be at an increasing resource

disadvantage. “They will be unable to marshal forces required for a

defense of the home market” (p. 146).

Research Design and Data Collection

Research Design

I want to know more about this new type of firm – what characterizes

born globals and their internationalization process? Quantitative

research looks at a large group of cases, people or units and measures a

limited number of features. A case study is more distinct. It usually

involves qualitative methods and focuses on one or a few cases during a

limited time period. Since few studies have investigated these issues in-

depth, it seems most appropriate to start with an exploratory, in depth

study to get a better understanding of the topic at hand.

Case studies are very demanding to carry out, and for this reason only

relatively few cases are chosen. In this study twelve case firms have

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been studied – one firm representing one case. The advantages of

carrying out more in-depth case studies are that it allows the researcher

to study complex issues in their real-life context and to collect and

analyze multiple types of data (Yin, 1994). It is worth noting that

qualitative and case study research is not identical, but “almost all

qualitative research seeks to construct representations based on in-

depth, detailed knowledge of cases” (Ragin, 1994:92). I started by

contacting the founder/CEO or another key employee (which has been in

the company from the start) of the firms I have found fulfill my criteria,

with a request that they participate in the study. The potential case

companies were selected using theoretical sampling (Glaser & Strauss,

1967; Yin, 1994). Thus, the logic of sampling was not random selection

for statistical purposes but rather purposive sampling based on

theoretical considerations. Because statistical sampling logic was not

used in this study, the typical criteria regarding the actual sampling size

were also relatively unimportant. What is important is the potential of

each case to aid in developing theoretical insights into the dynamics of

the internationalization being studied. During the first meeting with a

representative of the firm concerned, I presented the aim of the study

and the data gathering process. The case companies have been

selected from a pool of respondents to a survey that was carried out in

the Autumn 2001. The population of that survey was defined to be

SMEs in Norway, founded after 1990 (registered in the Kompass

database), an SME being defined as firms with less than one hundred

employees. The reason why relatively recently established firms are

chosen, are to ensure that the details surrounding the founding of the

firm are not lost to history. The definition of an SME is based on the fact

that several studies have found that most of the fast internationalizing

firms have far less than 100 employees. Knight, Madsen & Servais

(2002) found in their study of Danish and US BGs that the average

number of employees in the Danish sample was 60. From this I draw

the conclusion that to study Norwegian BGs it is sufficient to draw a

sample from a population of firms with less than 100 employees. This

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view is supported by Solberg’s (1988) findings that successful exporters

were significantly smaller than unsuccessful exporters. This finding lead

him to suggest that smaller units are better able to create the right

atmosphere for successful exporting, necessitating a closeness to the

market and an open minded organization not always present in large

corporations with rigid bureaucratic decision procedures. The SMEs also

had to be exporting (obviously). In addition I aimed to select firms that

were a stand-alone entity. The reason for this, is that it is expected that

sub-units of larger firms have greater access to resources such as

capital, human resources and information (Harveston, 2000). Despite

this, I ended up having three cases that were not independent, partly

because to draw a line between dependent/independent is not always

that simple and because it has been suggested that it might be useful to

have some cases that are not independent for reasons of comparison. A

relatively wide population was chosen at the outset in order to enable

me to draw a continuum where more gradual internationals are at one

extreme and true born globals at the other. The main cut-off point for

the different types of “globals” were made according to the market

selection dimension and export rate (after three years). For instance an

SME exporting only to Scandinavian countries may be termed gradual

global – if the export rate within three years are less than 50%. An SME

exporting to both Scandinavia and Western-Europe is slightly more

global and so on. The world is divided in seven parts with increasing

psychic distance from home market (in this case Norway); Scandinavia,

Western Europe, Eastern Europe, North-America and Australia, rest of

Americas, Asia and the remaining parts of the world (Africa and Arab

countries). This division is more or less in accordance with Junkkari

(2000:160), who classifies areas from hot (close in terms of business

distance) to cold (far away).

Operationalization

While measures of imprecise concepts are never completely valid or

reliable, researchers strive to maximize these qualities (Knight, 1997).

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Pace of internationalization

The pace of internationalization was measured as how many markets

(regions) an SME is entering in a certain time period and also to which

type of regions the firm is entering and in what order (close or far away

from home market in terms of psychic distance). In addition I measured

how fast, after founding, the SME reached an export rate of say 25%,

50%, 75% and 100%.

Degree of Globalization

Globalization may be conceptualized in terms of a continuum from low

to high, along which different industries fall (Porter, 1986). An industry

at the very low end of globalization is highly independent of industries in

other countries. An industry at the very high end is significantly linked

to similar industries in multiple countries in which its various value-

added activities are located. The extent to which an industry is

characterized by international linkages is seen as an important

indication of its level of globalization (Makhija, Kim & Williamson, 1997).

It is rather difficult to find good measures of an industry’s globality, but

to adequately examine global strategies it is, according to Porter (1986)

and Bartlett & Ghoshal (1989), required to establish the extent to which

an industry is global. Each industry’s unique blend of competitive

pressures is likely to result in varying levels of globalization, which in

turn are reflected in the strategies the firm utilize in these industries

(Prahalad & Doz, 1987; Yip, 1992). One way of measuring this is using

the ranking of different industries in Yip (1992:34) or use subjective

measures asking the managers in the SMEs how they perceive their

industry according to certain set dimensions of globality (Solberg,

1997:5). These determinants may be useful even if they are based on a

more traditional view on globalization, but it is probably useful in this

study also to add some questions on what type of markets they are

aiming for (niche versus large markets), and degree of specialization of

products (Madsen & Servais, 1997).

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Top management experience/background

This construct is defined as the amount of experience that a manager

has accumulated in an international context. Harveston, Kedia & Davies

(2000), state that most studies using this construct have used amount of

time spent in the form of foreign assignments, education, or vacations

as a proxy to international experience. This covers one dimension of the

construct, length. From which continent(s) the key employees have

experience and whether the key employees have mainly worked abroad

or at home, covers the second dimension, scope.

Other proxies to foreign experience are; to which extent has the

manager engaged in foreign travel? How many languages does the

manager speak and how fluent is he in the different languages? Was

the top decision maker born abroad? Has he/she lived abroad

(Meisenbock, 1988; Reid, 1981)? What was the mindset of founder at

start-up (Harveston, Kedia & Davis, 20002)?

Personal NetworkAccording to Solberg (1997:16) the more global the industry structure –

the more important becomes the presence of an active and widespread

network. Motives for entering a new market were queried and the

characteristics of prior relationships and the role they have played have

been sought. Personal relationships to be studied in this thesis thus,

were relationships that key employees define as having an impact on

their road to internationalization. That may be relationships in their

home country or relationships in the target country, from working

abroad previously or from studying abroad or just a network they have

developed through their previous work assignments in their home

country. I wanted to establish what type of relation exists between the

key employees and their stated important network – how close are they?

This can be measured as frequency of contact (daily, weekly, monthly)

and type of contact (face to face, telephone, mail). We may assume

that the more frequent their contact and the closer type of contact used

(e.g. face-to-face), the more trust exists among the parties. Whether

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the contact is formal or informal may also be of some importance

assuming the more informal the contact the closer the relation and the

more bindings between the parties exist in terms of trust.

Product characteristics

I asked questions about how unique the product is considered to be,

compared to competitive products, is it “one of a kind”? Is it meant for

the consumer market or the industrial market. It is also considered

important whether the product is sensitive to changes in trends, price

and/or quality and whether they consider the product life cycle to be

long or short.

Performance

I did not intend to measure performance at this stage – I assumed that

firms internationalize in order to capture potential profit opportunities

outside the home market or to withstand competitive pressure, i.e.

factors that influence the firm to internationalize also contribute to its

increased profitability. It was in other words assumed that the more

international/global a firm is, the better it is performing. This may be a

bit off the mark, but since these are still very young firms I believe a

follow-up study will be in place in a few years to find f.i. survival rates

and how outspread deinternationalization is among the sample.

It is seen as difficult to measure whether an exporter is successful or not

(most measure success as the proportion of export sales to the firm’s

total sales – over a certain period of time (Ford & Leonidou, 1991:13). I

decided to measure performance after all and used Moen’s (2000)

performance measure, a four-item subjective scale including perceived

profitability, growth as compared to competitors, satisfaction with

market share and the overall rating of export performance (items taken

from Knight’s, 1997 study) in addition to getting financial data from the

interviewees and from a national data base (Brønnøysundregisteret).

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Selection of Cases (sampling)

In case studies you usually select cases based on theory (theoretical

sampling). When using several cases, they should be selected so as to

a) predict same results, or b) give opposite results, but for predictable

reasons (Yin, 1994). When using several cases, it can be useful to use

an explicit framework to choose from. This frame should be guided by

the research question and the conceptual framework. The framework

developed consists of a 2x2 matrix (see Fig. 2). The horizontal line

stating volume of export reached within three years of founding and the

vertical line stating number of market areas the firm is present in, i.e. it

includes my two main dimensions measuring a firm’s degree of

internationalization/globality.

several

No. of BGM TBG

continents

one GG BGE

< 50% <

Export within 3 years

Figure 2: Classification of global SMEs

TBG = True Born Global

BGM = Born Global on Market dimension

BGE = Born Global on Export dimension

GG = Gradual Global

Short description of the cases

I had to select firms that satisfied the framework conditions.

No. of areas

Several

Fras Colormatic

Kay Lindegaard IRTech

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Opera

Optoflow

ICAS Dolphin

Incatel Nor-Reg

Norsk Display

Superject

One < 50% <

Export within 3 years

Figure 3. The case companies

Gradual Global (GG)

ICAS AS was established in 1989 and started exporting in 1992. Current

export rate is 45% - after three years it was 30%. They are present in

Europe and sporadically in South-Africa (2001) and Australia (2000).

Incatel AS was established in 1993/94 and started exporting 1996.

Current export rate is 80% - after three years it was 50%. They are

present in Europe.

Born Global on Market dimension (BGM)

Fras AS was established in 1996 and started exporting in 1998 (90).

Current export rate is 80% - after three years it was 20%. They are

present on ships all over the world.

Kay Lindegaard Incinerators was established in 1999 and started

exporting the same year. Export rate after three years was 50%, same

as today. They are present all over the world.

Born Global on Export dimension (BGE)

Dolphin Interconnect Solutions AS was established in1991 and started

exporting in 1992. Export rate after three years was 90% the same as

today. They are present in North-America, South-America, and Europe.

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Nor-Reg AS was established in 2000 and started exporting in 2001.

Export rate after three years was 75%, same as today. They are present

in Western Europe and Japan.

Norsk Display AS was established in 1993/1994 and started exporting in

1994. Current export rate is 60% - after three years it was 65%. They

are present in Western Europe and North America.

Superject AS was established in 1990/1991 and started exporting in

1991. Current export rate is 80% after three years it was 70%. They

are present in Europe (mainly Western part).

True Born Global

Colormatic AS was established in 1997 and started exporting in 2000.

Export rate after three years was 90% - today it is 95%. They are

present in Scandinavia, Western-Europe, North America, Australia and

Asia.

IRTech AS was established in 1995 and started exporting the same year.

Export rate after three years was 100% - the same as today. They are

present in Europe, North America, Australia, and Asia.

Opera Software ASA was established in 1995 and started exporting the

same year. Export rate after three years was 99%, same as today.

They are present all over the world.

Optoflow AS was established in 1993 and started exporting in 1997.

Current export rate is 90% and after three years it was 85%. They are

present in Scandinavia, Western Europe, North America/Australia, Asia

and Africa/Arabia.

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Case descriptionsThe analysis in this section is based on twelve cases and seeks to

generate propositions that can be tested with large scale data sets

(Eisenhardt, 1989). Analysis and proposition development will be

segmented into four topics: (1) experience/background of founders, (2)

personal networks, (3) product characteristics, (4) industry globality. In

the interviews, I focused on understanding the drivers for the

international character of the SMEs in greater detail.

I use within-case analysis as well ass cross-pattern search (Eisenhardt,

1989) to analyze the data. Data and interview notes were coded by the

author using the software “HyperResearch”. This was done for each

firm along a number of dimensions.

Background of each caseSince data displays help the researcher see patterns (Miles & Huberman,

1994:433) I have decided to draw up critical events of each case’s

history (see below):

Colormatic – inkdoser (Background Tronrud Engineering – purely marketing & sales)

Product development

1983 1990s 1996 1997 1998 1999 2000 2001Thronrud Thronrud 1st ed. Start-up Prototype *Schaefer USA Sell to 22 USAEng. Established approached ready Trade fair employed Germ. countries Japan

by 2 printers (no success) in Birming-England, France direct export & ham (Ipex) Belgium, distributors

Denmark, Australia & New Zealand**

Direct export

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*Schaefer was employed to strengthen the marketing and sales efforts. ColorMatic is purely a marketing and sales organization w/ some product development – Tronrud Engineering does the production and the main part of the product development part.**They had all seen it and become interested at the trade fair in Birmingham the year before. Only have 1 employee abroad – sales office in England to get more control.

Dolphin – Hardware (Background Norsk Data)

1991/19921992 1994 1996 1997 2000 2001 2002Start-upDir.Export Move ownersh. Buy-up Agent Agent Agent USA & China

USA to US co. in US France England Germany Sales subs. USA

FRAS – Fluid sampler (Background – Norske Veritas – Mission critical)

1975 1986 1990 1991 1996 1998 1999 2000 2001 2003Parker Heglunds France Veritas Start-up Lloyds Licens China LookingHaneyfin follow Product Germany(Statoil) for investors

customers (Norske Skog)

All production at Brødrene Jonsen in Ski – they are a development company. They do not aim at country markets, but productmarkets; offshore, ship,

processindustry and energyproduction follow large customers out (e.g. Norske Skog, Shell, Statoil, Esso, Hydro, Lloyds)

ICAS – Smoke detector

1989 1990/91 1993 1997 2000 2001 2003 Start-up New law Finland Sweden (40%) Australia S-Africa England Germany

*Production Agent Germany Subsidiary England the Czech

Republic

Produced in Norway in 1990, but found it too expensive so started production in the Czech Republic from 1991 all production take place there - only marketing and sales in Norway

20

IRTech – system for detection of cracks in steel(Background – Elkem - just support and upgrading today – mission critical)

Hovland In Elkem (-81)

1980s 1982/83 1984 1985 1986 1987 1988 1989 1990 1992 1993 1995 1999 2001 Elkem 1st systemCzechFranceFrance Engl. Taiwan Engl. GermanyUSAElkem Start-up Up- Use develop Germany USA Germany Korea TaiwanEngl Austr.wantedItaly grade Elkem’s system Direct Korea Japan Sweden out Engl. agents

export Turkey

Today have 1 plant in Czechoslovakia, 1 in Turkey, 1 in Korea, 1 in Japan, 1 in Italy?, 2 in France, 2 In USA, 3 in Germany and 3 in England .

During last two years 1 plant has been closed down in Australia, 1 in Sweden, 1 in Korea and 1 in Taiwan.

Incatel – Software(Background IBM – mission critical)

Vedeld Vedeld (-92) IBM Amis picked coworker

now leader Incatel

1959 1961 early 80s 1987 1989 1991 1992 1993/94 1997 1999 2001 2002 FranceVedeld 1st Pilot Sysscan Amis Vedeld Start-up Tele Chech Belgia Telia Telekomcomputer Tele- INKA bank- in Tele- Incatel Danm.Telekom Telekom Britishprogram verket rupt verket (KPN) Telekom

CimageCorenaCorena (IBM) dissolved

(1994)

Kay Lindegaard Incinerators (Background - Kay Lindegaard)

1932 1960 1970 1979 1990s 1999 2001 2002Start-up Start-up Ovens Hendriksen ProductionStart-up Agents all RussiaKay L Kay L for ship Croatia KLI over the world S-Korea

ovens Poland 1st

followed customers

NOR-REG Maskin – Packaging machines (Background – Nor-Reg)

21

1967 1997 1999 2000 2001 2002Parentco. Agents Sales subs Start-up co. Merged Aim to use only own subsidiariesestablishedDenmarkSweden, Establish w/mother due to bad experience w/ agents &

Japan Germany, production again distributors UK in Germany Snacksmarket

USA

Are present in 7 countries – Sweden, Germany, UK, Denmark, Japan, Spain & Ireland.

Norsk Display - Electronic Signs

1994 1995 1996 1997 1998 1999 2000 2001 2002EstablishStart-up/Denmark Internet USA Belgium Direct export US &contact export Finland Homepage UK to approx. 8 Germanyimport. Netherlands Germany countries (Netherl.relation (dir.export) US, Finl, Sweden,

Germ, Belgia, UK, Denmark)

Opera Software (Background Telenor)

1991 1994 1995 1996 1998 1999 2000 2001 20022003 Cofounder Telenor Start- 1stOpera EmbraceUS Free ad- Symbian**

Cellularphones Tezchner project up browser emerging sponsored Holland Digital-TV Telenor Export released market of versions released internet internet Commercial

devices breakthrough *Opera team up w/key players in Internet device mrkt Acquired Hern Lab (Sweden) R&D Repr. Office (US) S&M UK web developer

* Ericsson, Nokia, Sony, IBM, Psion.

22

* * Symbian = Strategic alliance of leading handset and mobile computing manufacturers (Ericsson, Motorola, Nokia, Panasonic and Psion).

Optoflow AS – cytometer

1993 1994 1995 1996/97 1997 2001Start- Reodor Product UK Employed BioDetect KoreaUp prize 1st sale N OEM 3 people Japan

distributor

2 agents in USA, 1 in France, 1 in Italy 1 distributor in Japan, 1 in England and 1 in Germany

Superject – seals

1990 1992 1993 1994/95 2000 2001 2002Start-upSweden Nearly Denmark Germany France Take-over

Direct bankrupt bidexport Stokkan(then Finlandagent) Distributor (Swe)

Meet importantrelation (distributor/Swedish)

Today distributors in Sweden, Denmark, Finland, Germany and France. Direct export to USA, Italy, Poland + + Most important product market: pulp & paper (30%) and country market: Sweden (25%)

Summary

No of Founded Internat.sales Sales 2001 Profit 2001Product

employees (export) 2001(after3yrs) NOK NOK ColorMatic 3 1997(00) 95% (90%) 11 mill 0.53 mill Inkdoser

Dolphin 10 1991(92) 90% (90%) 46 mill - 21 mill Hardware

Fras 4 1996(98) 80% (20%) 7 mill 0.35 mill Fluidsampler

ICAS 65 1989(92) 45% (30%) 27 mill 2.05 mill Smokedetector

Incatel 65 1993/4(96) 80% (50%) 25 mill - 43 millSoftware

IRTech 2.5 1995(95) 100% (100%) 4.6 mill 1.24 millCrack

detectionKay L 2 1999(99) 50% (50%) 3.1 mill - 0.15 mill

Combustion

23

ovenNOR-REG 20 2000(01) 75% (75%) 17 mill 0.3 mill

Packagingmachines

NDisplay 3 1993/4(94) 60% (65%) 3 mill 0.03 mill Electronicdisplay Opera

110 1995(95) 99% (99%) 28 mill - 21 millSoftware

Optoflow 10 1993(97) 85% (90%) 3.6 mill -5.53 mill Cytometer

Superject 4 1990(91) 70% (70%) 3.2 mill 0.29 mill Seals

* I verified all the numbers from the interviewees with transcripts from the “Brønnøysund register” except for Nor-Reg Machine AS where I only managed to find the financial statements of the parent company.

Figure 4 The case companies degree of globalization

Fras has today moved from being a born global on the market dimension

3 years after start-up to becoming a true born global. Dolphin, IRTech,

KLI, Nor-Reg, and Opera have remained at the same level of

No.ofareas

One

7

6

5

4

3

2

25% 50% 75% 100%

Export within 3 years

GG BGE

BGM TBG

* ICAS *Incatel

* Fras * KLI

* Dolphin

* Nor-Reg* Superject

* Norsk Display

* IRTech

* Optoflow

* ColorMatic

* Opera* Fras today

*Incatel today

24

internationalization while Norsk Display has reverted a bit without

changing category. The two gradual globals, have both become more

global, ICAS has increased its export rate slightly and thus moved to the

right while Incatel has both entered more markets and increased their

export rate significantly and thus is today a born global on the export

dimension. ColorMatic, Superject and Optoflow have become slightly

more global. I have just drawn in the most extreme changes e.g. Fras

and Incatel.

Discussion

Five out of the twelve cases had negative results in 2001, but two of the

firms with the largest negative results, Opera and Incatel, with -21 mill

and – 43 mill respectively, are both positive of the future, Opera expects

to have a positive result of about 10-20 mill this year (2003) and Incatel

has forecasted to have a positive result of about 10 mill by 2002

following from the contract with Telia. Incatel in the “Information

Memorandum” describes themselves as having “stable growth and

healthy economics” (p.20) – they achieved revenue growth of 35% from

1994 (9 mill) to 2000 (54 mill) and they have been around break even or

profitable every year except for year 2001. The reason for the fall in

revenue growth in year 2000, and the weak revenue and profit figures in

year 2001 was due to a significant investment in product development,

and that they increased sales and marketing efforts to strengthen their

Nordic position and also the fact that the times were difficult in the

telecom markets in 2001. The efforts in product development and sales

and marketing seems to have paid off for 2002 and the years to follow,

they have forecasted revenues of 80 mill for year 2002. These two

firms, Incatel and Opera, was rated as 2 out of 26 hottest firms in

Norway and were chosen to take part in the “Norwegian Tech Tour”

where they are to make themselves attractive for representatives of the

25

world’s largest venture-moneybags. The criteria to be selected were

that the firms had to be in ICT (Information Communication Technology),

energy or biomarin business, they should be in a phase of expansion,

have unique technology and be international on a large scale. The

administrator of Norwegian Tech Tour Mr. Vaksvik, believes they have

selected the 26 firms, out of 115 applicants with the greatest

international potential (Nettavisen, 28.08.2002).

Dolphin also with the next largest negative result (-21 mill), explains this

by the fact of the USD falling in March 2001, the result in 2000 was 79

mill and turnover was 63 mill in year 2000, the sales and the profits

accordingly thus seems to fluctuate quite a bit.

ICAS is the case with the best result out of these twelve cases, this may

be explained partly with the firm being cautious in their expansion

strategy, ref. their slow internationalization – they still only have an

export rate of about 45% 13 years after start-up and they are present in

about 6 countries mainly in Europe, with Sweden being their most

important market accounting for 40% of their total sales. Another

explanation for the good results may be that the product ICAS sells is a

rather simple product made for a mass market and thus not demanding

large investments in product development. Last, but not least, ICAS is

the “oldest” firm of the sample (established in 1989) and it follows then

that it has had the time to get established in the market and to pay off

debt. We saw above that both Opera (established in 1995) and Incatel

(established in 1993/94) with relatively large negative results expect

this to change in the very near future, the picture might thus look a bit

different in a couple of years.

ICAS is the least global case and Opera the most global why is that so –

what is the big difference between these two firms that can explain their

different paces of internationalization? Let us look at the facts, both

ICAS and Opera produce consumer goods, but Opera also has large

26

industrial firms as customers. It is a fact that Norway is traditionally not

that strong on massproduction of consumergoods. Opera also has a

large and powerful supporter in Telenor, where the founder worked

previously, they supplied them with consultancy and also locations at

the time of start-up. ICAS has no such “sugardaddy” in the back. The

products of these two firms are also very different, while Opera’s

software has very unique features and is very specialized differentiating

it from other similar products and a very short product life cycle

demanding constant updates, are ICAS’ smoke detectors neither unique

nor specialized and they have a long product life cycle. Opera’s product

is also very special in that it can be distributed over the internet, it

makes thus no difference where the customers are located as long as

they have access to the internet, this obviously simplifies the process of

internationalization. Last but not least, the founder of ICAS describes

the industry’s level of globality as low in that there are different

standards from country to country, while in Opera’s case, level of

globalization is described as very high with no barriers whatsoever and

the demand pattern is also described as global. Both founders describe

competition as very strong, but while Opera describe their competition

coming from a few, very large, American companies such as Microsoft,

describes ICAS’ founder the competition as coming from many both

small and large companies, especially from China. Another factor that

might have influenced these two “extreme” firms’ pace of

internationalization, might be the characteristics of the founders.

Opera’s founder is currently 35 years old and he has extensive

experience from abroad while ICAS’ founder is 57 years old and he has

never lived nor worked abroad, although he has some experience from

international firms.

I will now go on to discuss the case firms and how they may have been

influenced by each of the different dimensions in some more detail, but

first a summary (see figure below).

27

Firm Relational Globality Product Experience ColorMatic Not relational Low Industrial Technical

“one-shot” Specialized Bit businessHe has relations Long PLC studies (US)will not emphasize Unique Worked

abroadNot price sensitive

Sweden/Holland Inkdoser Engl/Swed/Germ Dolphin Not relational Very High Industrial Physics

Contract important SpecializedData/electronics

Important research Medium PLC Lived in Sweden

relations Unique Travelled extensively

Not price sensitive Worked only in N co’s Hardware Engl/Germ/French Fras Very relational Very high Industrial Technical (eng/bus)

“My friends” Specialized Established 2 firms

Very small industry Long PLC Always worked Unique internationallyNot price sensitive “see no

barriers” Fluid sampler Engl/Germ/Swe/Da ICAS Very relational Low Consumer Technical (eng/mrktg)

Will not emphasize Not specialized Worked in int’l org.

personal network Long PLC Never lived abroad“experience from Unique production English &

Frenchworklife important” Not price sensitive

Smoke detectors Incatel Very relational Low Industrial 30 years in IBM

“friends” from Very specialized Stats & Business

time in IBM & Long PLC Made computer progr.

Telenor Unique Lived in Sweden &

Not price sensitive US Software Eng/Germ/French

28

IRTech Very relational Very high Industrial Technical (engineer)

“personal friends” Specialized Worked in Geneve

Important network Long PLC for 8 years, 1 in US

from time in Very unique Studied 3 years in Swe

Elkem Not price sensitiveEngl/Germ/French

System detect cracks KLI Varies Medium Industrial Technical (engineer)

No own network Specialized Travelled extensively

(agents) Long PLC never lived abroadPrice sensitive

Engl/Germ/French Incinerator NorReg Mach Not relational Medium Industrial

(technical)“too technical” Specialized Bachelor

mrkt/financeHave some network Long PLC Lived 4 years

in USUnique Worked in Swe

4 yearsPackaging machines and Germany

1 year Engl/Germ/Fren/Span Norsk Display Relational High? Industrial Technical (engineer)

(attitude) Simple Little foreignwish it to be Long PLC experiencecloser Unique

Engl/Germ/French 1 v.imp.relation Electronic scales Opera Very relational Very high Consumer (Technical)

R&D cooperation Specialized Business educationw/customers Very short PLC Lived abroad

most ofCFO has netw. Unique grown

life (UK/Swe)imp.for finance Price sensitive English &

French Software Optoflow Not relational High Industrial Technical (electronics)

29

“one-shot” Very specalized Only worked in N coWill not emphasize Very long PLC Travelled

extensivelyimp.of network Very unique in Europe and

US1 v.imp. Swiss Not price sensitive

Ebgl/Germ/French “experience fr. worklife” Cytometer Superject Varies Very high Industrial Technical (engineer)

1 very important Very standardized Worked abroad on

relation since 1993 Very long PLC N projectsin Swedish trading house Very unique

Travelled extensivelyNot price sensitive English

Seals to rotating shafts

Figure 5 Summary dimensionsOne surprising finding is that even though the founders state that they

have a network of importance and find it rewarding to cultivate these

relations, they might not have a very relational attitude towards other

actors in the market f.i. customers. Mr. Løchsen in Dolphin f.i describes

the general business climate as “largely of technical nature” (Løchsen,

2002), at the personal level on the other hand, he has a network of

importance – the relations he has through a European Research

Cooperation is emphasized. The founder of Optoflow describes their

sales as “one-shot” and there is thus no ground for building relations

with the customers. Mr. Gjelsnes in Optoflow states that “work

methodology” is the most important he has got from life, not

relationships – experience from previous work-life and finding which

methods that work, is seen as most important for the success of the

firm. This is said despite the fact that a very important Swiss connection

aided him at start-up. Mr. Gjelsnes admits that this man was very

important at the time, but he has no contact with him presently, “I don’t

know if he’s still alive” (Gjelsnes, 2002). In addition he has important

relations with various research organizations such as Sintef,

Radiumhospitalet and Veterinærhøyskolen, that aid him on subjects

where he has insufficient knowledge and they cooperate on R&D. This

30

finding is supported by Uzzi (1997),who states that assumptions about

individuals being either innately self-interested or cooperative are too

simplistic, he found that individuals simultaneously acted “selfishly” and

cooperatively with different actors in their network.

I have found that the three “subsidiaries” KLI, Nor-Reg Machine and

ColorMatic is not very relational – is it because small companies need it

more? In addition I found that the founders of Fras, Incatel and IRTech

all refer to their business relations as “personal friends” – these

companies are also the ones that sell products that are supporting

needs at the customers that are referred to as “mission critical” – is

there a connection? The customers with processes of the type, mission

critical, are obviously very dependent on reliable suppliers.

Even if there are only three “subsidiaries” out of the twelve cases, eight

of the cases have large, well-known companies in the back and of the

last four cases, three have strong relations to at least one important

actor to, as the founder of Superject put it; “get associated with

something bigger” (Stokkan, 2002). ColorMatic is the “subsidiary” of

Tronrud Engineering, KLI of Kay Lindegaard and Nor-Reg Machine of Nor-

Reg. The large company in the back of Dolphin is Norsk Data, of Fras is

Veritas, of Incatel is IBM and Telenor, of IRTech is Elkem and of Opera is

Telenor. ICAS closely cooperate with insurance companies, Optoflow

has very close relations to different research institutions and Superject

has a very strong and long-lasting relationship with a large distributor,

Elof Hanson in Sweden. The last firm, Norsk Display does not have a

large firm in the back, but the founder expresses a wish to have closer

relationships with the customers, he does not feel they have succeeded

in that. This supports the findings of Crick and Jones (2002) who found

that several firms were set up by managers with experience from

international markets and most importantly they have developed

networks and made contacts on which they could build on after setting

up their own firms.

31

When it comes to the background of the founder, the most striking is the

fact that most of the founders have technical background. In addition, it

seems that the founders of the two gradual global firms have quite

extensive international experience and it is thus slightly puzzling why

they have not moved faster on the internationalization process (might

find answer to that in type of product and globalization of industry which

is low for both firms).

Almost all of the cases’ products have a long or very long product life

cycle no matter which category they belong to, this is quite opposite of

what I was expecting. Not so surprising is the fact that all but two cases

produce and sell industrial products, only Opera (software) and ICAS

(fire alarms) sell consumer goods, Norway has no tradition of mass

production at least not for a foreign market.

ConclusionsWe can assume that globalization will continue to escalate, bringing

about fundamental changes in the traditional boundaries of nations,

industries and market. This increased globalization creates great

opportunities, but also poses significant challenges for managers and

founders of new international ventures, opportunities and challenges

that is important to understand to operate successfully in the new world

market.

32

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